If there is a silver lining in this economic downturn, it’s the possibility that it might ferment new activism, as well as a new openness to bottom-up solutions during a time of what many perceive as a lack of leadership at the top.
Last month on Feb. 15, the Rev. Jesse Jackson Sr. brought together a broad assortment of religious, business and community leaders to the Hilton Anatole in Dallas to discuss possible responses to the foreclosure crisis, now entering its third year. The event brought new attention to the continuing economic woes being felt by many in the greater Dallas area, but also went further by spotlighting the crisis’ roots in the failure of powerful economic and political actors—Wall Street, banks, the Fed, both political parties—to effectively stem the tide.
Eight days later, the Rev. Jackson, through his Rainbow/PUSH coalition, led a national rally against Bank of America, who he identifies as one of the main culprits in the crisis. “The problem was that when the money went to the banks, the money was not, basically, held accountable for them to put on the lending side. They actually put the money on the trading side,” said Winsor Barbee, a Dallas spokesman for Rev. Jackson.
The Center for Responsible Lending paints a bleak picture. 6 million foreclosures have been initiated since 2007. At least six-and-a-half million more homes are "at risk" right now—“at risk” defined as a homeowner more than thirty days behind on their mortgage or who is already in the foreclosure process. In 2009, American households lost $500 billion in equity as a result of foreclosures in their neighborhoods.
These actions take place in the shadow of the Obama Administration’s struggling Home Affordable Modification Program (HAMP). Though designed to assist 3 to 4 million distressed homeowners, by Dec. 2009 only 650,000 had actually been helped by the program, and only a small fraction of those have received complete loan modifications. Critics contend that the program doesn’t sufficiently take into account the problem of negative equity—i.e. “underwater” mortgages in which a homeowner owes more on their mortgage than the home itself is worth—and is too geared towards interest rate reductions rather than principle modifications.
Compounding the problem is the fact that loan servicers make most of their money from their servicing fee, which is a percentage of the outstanding loan principle balance, removing any incentive to modify the principle balance. Only lowering interest rates leaves homeowners still saddled with huge negative equity.
“What prompted Rev. Jackson to start this national movement was when Bank of America listed their reports the first week of February in the New York Times, they basically said they had 1.2 million homes that qualified for the loan modification,” Barbee said. “Of those 1.2 million homes, Bank of America only extended loan modification to 98,000 which is not even 10 percent. Because they could not even do 10 percent, that basically says, ‘Okay, here we go.’”
The “we” Barbee refers to is Rev. Jackson and others taking part in the action against Bank of America and other financial institutions. Because of Jackson’s out-sized public profile and reputation, his presence before the cameras may serve as an argument for greater outrage, even militancy, on the part of those affected by the recession, and not just among African-Americans.
As a potential model for how homeowners could be substantively helped, Barbee gives as an example the loan modification program run by civil district court judge John Hoffman of Dallas. Although the Texas state constitution limits district judges’ jurisdiction to secondary mortgages (such as home equity lines of credit), Hoffman claims that every person who has gone through his program has managed to at least temporarily save their home.
“The first thing that I do is I allow there to be a hearing where the homeowners can come and speak to the court, have the attorneys [for the bank] there as well for, and tell their side of the story so that they can say ‘Hey, we’re trying to have loan modification, we’re doing this and we’re doing that.’ And so what happens at the hearing is [if] they don’t show up and the foreclosure papers are in order they can go ahead with the foreclosure.”
But if the homeowner does show up, Hoffman gives them an opportunity to either go through credit counseling offered free of charge by a nonprofit organization, or go directly to mediation with the specially-trained mediators who are familiar with all the different options available—including the federal HAMP program.
For those who are simply in too deep to save their homes, Hoffman said that the program also offers a “soft landing,” allowing them to move out on their own terms.
Among the issues impeding the issuance of loan modifications to more people is the sheer mammoth size of institutions like Bank of America. It isn’t unusual for bank employees overseeing a foreclosure to be unaware that the homeowner is seeking loan modification with the same bank, since those tend to be different departments. Part of what Hoffman’s program accomplishes is bringing all the interested parties together to compare notes.
“It’s amazing how successful that’s been, because a lot of times once the banks are forced to look at the particular loans, they’ll work something out,” Hoffman said. “But because they’re processing so many of these at once, one side doesn’t even know what the other side is doing.”
Although district judges like Hoffman have jurisdiction over secondary mortgages, they are not obligated to assist homeowners in modifying the terms of their loans. Hoffman could, if he chose, simply rubber stamp foreclosures already in process, but he has taken it upon himself to use his court as a choke point to slow down the process and steer banks toward work-outs with homeowners.
“What my hope is, now that we’re working out the kinks in this program, is to try to expand this to more of the Dallas courts,” Hoffman said. But obviously, I as one judge can’t require other judges to do this, but I’m going to encourage them to do this.”
But during a time when so many people are hurting, it remains to be seen how much spare sympathy there is there for low- and moderate-income African-Americans, who comprise a large fraction of the people being helped by Hoffman’s program. And there remains a tendency among some Americans to blame those who took out mortgages they couldn’t afford for being personally irresponsible.
In addition, low- and moderate-income people have nowhere near the political clout of banking titans like Bank of America, which makes organization and messaging all the more important. But state rep Helen Giddings of Dallas, among others, is confident that well-organized actions can make a big enough splash to get people’s attention.
“What I’ve done for my constituents is that I’ve had one foreclosure prevention workshop. We have another one scheduled [for] sometime within the next six weeks or so,” Giddings said. “And we had probably 250 or 300 people come out, and we were able to help a large number of those people because we had many of the lenders on-site, and they had their laptops or whatever… and people came in with their bank [and income tax] information or whatever the banks needed to help them out.”
Despite such success, Giddings still ran headlong into the banks’ general unwillingness to budge on underwater mortgages. In such cases, at issue is not delinquency or inability to pay, but homeowners’ unwillingness to be stuck with negative equity. Even homeowners with strong credit who are current on their loans—with Giddings on their side, no less—were unable to make any headway with the banks.
“The problem seems to be that there was a bail-out for the banks and financial institutions, in the hope that there would be relief given to homeowners … to prevent some of these foreclosures. Basically, to a large degree that hasn’t happened,” Giddings said.
This reticence of the banks stands out all the more starkly given their role in creating the housing bubble that led directly to so many homes being underwater in the first place. The $75 billion that the Obama Administration set aside for HAMP is far less than the $700 billion spent on TARP (Troubled Asset Relief Program) for the banks, which in turn is just a fraction of the total money—tens of trillions—being spent on the entire Wall Street bail-out.
“The bottom line is this: the bail-out was not intended just to make banks healthy,” Giddings said. “The intent was that credit would be loosened up, and that people who were in foreclosure in these difficult times would have a way to work with these banks and the banks would have incentives to work with their clients, their customers. And so there has been a lot of concern about that.”
Although some mainstream media outlets are already reporting the end of the recession, what Judge Hoffman, Giddings and others have seen shows evidence of “facts on the ground” that tell a different story. “Some of [the people we helped] were very, very open about what happened to them,”
Giddings said. “They were not, as they shouldn’t have been, embarrassed at all about their situation, because many of them were in situations that they really didn’t create themselves.”
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